Boosting Telcos Smartphone Sales in Developing Markets

Transcription

1 Boosting Telcos Smartphone Sales in Developing Markets Smartphones could be a lucrative revenue source for telecom operators in developing markets. Done properly, operators share of smartphone sales could increase fivefold over the next four years. 1

2 In developed markets, telecom operators have traditionally played a major role in distributing handsets subsidizing retail prices and promoting phones to consumers who typically post-pay for service based on previous usage. Even as popular high-end smartphones such as Apple s iphone and Samsung s Galaxy have altered this market somewhat, operators still hold the upper hand in pushing phones with their customer-pleasing, revenue-boosting plans. Developing markets are more challenging when it comes to handsets and data plans. Roughly 95 percent of consumers use prepaid, no-contract phone plans on low-cost phones, which result in lower revenues per customer than contract plans. Telecom operators have traditionally avoided promoting and bundling high-end devices with their plans, largely due to fear of losing traction. Most of the efforts made to bring smartphones to developing markets have been sporadic and generally unsuccessful as demonstrated by the limited uptake for Vodafone India s 2011 Facebook Blue phone (by Alcatel) and Indosat Indonesia s 2010 Wigo. The next wave of growth is smartphone sales to low-income and rural customers. But the market is shifting. Smartphones are proliferating rapidly in many emerging markets, with penetration expected to more than double between 2011 and 2015 in countries such as Brazil, Thailand, Indonesia, and India. Demand for data services and applications is also rising in emerging markets particularly as operators roll out 3G speeds, and younger, more educated users flood the market. And handset makers are unveiling affordable mid-tier smartphones evident in the $100 to $200 price tags on the G-series line from Huawei, Nokia s Asha series, and phones from a number of local Indian handset companies. 1 As smartphone and data penetration rise, the next wave of growth will come with sales to low-income and rural customers. For example, in India, mobile data traffic is expected to explode, from seven megabytes per user in 2011 to 274 megabytes per user in 2016, by which time nearly one-quarter of all Indian Internet traffic will be mobile. Already, two-thirds of smartphone owners in India use their phones primarily for the Internet. Handset makers are now seeking out telecom operators that can provide access to low-income and rural customers (see sidebar: Smartphones for Low-Income and Rural Customers). Smartphones for Low-Income and Rural Customers The market for low-income and rural customers is challenging for both operators and handset makers. There are several reasons. Affordability. The typical low-income and rural customer spends between $30 and $60 to buy a new device and less than $5 per month on a communication plan. Drawing these customers 1 All monetary values are in U.S. dollars. will require affordable devices and plans. Awareness and education. Many within this segment have low literacy and education, along with limited to no previous exposure to the Internet. Recent research suggests that for some users in this segment, the first step will be educating them about the benefits of Internet access. Access. Low-income and rural markets largely obtain their phones through unorganized channels in which handset suppliers have limited control. Operators, with an established presence in rural markets and access to customers, are in an ideal position to grow by partnering with handset suppliers to reach users in untapped markets. 2

3 The question for telecom operators is not if or when to tap into these emerging markets the time is now. The question is how to define coordinated smartphone retail and data strategies to capitalize on the opportunities. Done properly, our research has found that operators could increase smartphones share of phone sales from 2 percent today to as much as 10 percent by Defining Strategies A country s smartphone penetration correlates closely to data revenues as a percentage of total revenues (see figure 1). This demonstrates that consumers are either getting hooked on data services and buying smartphones to gain better access to them, or they have acquired smartphones and increase their usage multifold as they discover smartphonebased applications. Recent market research in emerging Southeast Asian markets suggests that 70 percent of smartphone users sign up for a data plan, and they consume 30 times more data than owners of data-enabled standard phones. Figure 1 Smartphone penetration correlates closely to data revenue as a percentage of total revenue 40 Data as percentage of revenue Correlation coefficient: 0.93 India Brazil Thailand Malaysia Indonesia Smartphone penetration Source: A.T. Kearney analysis Across the globe, smartphone sales and data revenues have increased in line with the rollout of 3G mobile technology. In Brazil, data revenues took off in 2011 after 3G coverage increased to 75 percent of the population. Not only did mobile phones become the preferred method for accessing the Internet, but social media, gaming, and video applications also increased significantly. 3

4 From a retail perspective, the options in emerging markets are evolving. Traditionally, because of market challenges, a passive approach to data plans and smartphones was the name of the game. Now, with significant growth potential in these markets, expansion plans might consist of one of two strategies: branding, or data upsell and monetization (see figure 2). A branding strategy calls for using existing retail outlets as primary destinations for data services, drawing walk-in customers interested in expanding their use of mobile data plans. A data upsell and smartphone monetization strategy takes this a step further by making smartphones an entry point to increased data use and in turn new revenues. Figure 2 Emerging market telcos can increase their data and smartphone focus Aggressive Branding Data upsell and smartphone monetization Data upsell and smartphone monetization Move in line with developed market practices Use smartphones to increase data uptake Contract lock-ins and bundling can lead to data upsell Data and device experience in stores draws customers Analytics can craft appropriate data plans for customers Emerging market telcos today Branding Attract walk-in customers to stores and enhanced branding Turn stores into destinations to learn about devices and data Weak Aggressive Smartphone retail focus Source: A.T. Kearney analysis The strategy of choice depends on the market, its data evolution, and your focus areas. Some emerging market operators (Idea in India and Telkom Indonesia, for example) have selectively explored the branding play by promoting a few own-branded smartphones and data plans but have not gotten involved completely in the handset-buying process. Other emerging market operators have aligned with handset makers and e-commerce sites to offer new data plans. Because operator-branded retail stores are generally located in good catchment areas and offer traditional services, it is possible to kill two birds with one stone by maximizing productivity in existing stores while also increasing profitability through sales of smartphones. Here, the secret to success is to make good use of the data already on hand customer spending behaviors and handset usage patterns to become trusted customer advisors. Handset makers are not privy to this level of data so it becomes a huge customer service advantage for operators that track, monitor, and know how to use this level of customer information. 4

5 What Matters to Smartphone Buyers? Our recent research of India s smartphone market finds that the primary purchase criteria for buyers in India are competitive prices, superior device and data experiences, convenience, and strong brands (see figure 3). Fewer than 20 percent of smartphone buyers rate accessories, financing, and bundling among their top three criteria. For the in-store experience, holding and trying the handsets and a knowledgeable sales force are important, followed by multiple handset options, store look and feel, and availability. Among sales agents with strong product knowledge are important, while post-purchase services are considered nice to haves, with service and repair ranking highest. Yet, people are still largely unaware that such services are available. Generally speaking, existing retail and wholesale channels in emerging markets do not meet these customer expectations, or at least not completely. So there is an opportunity to plug the gap and provide a superior customer experience, while highlighting brands and new devices. A handful of players are aligning their smartphone retailing strategies with handset makers. For handset makers, emerging markets such as India and Indonesia are crucial growth areas, and they may consider similar partnerships to drive captive sales. Figure 3 How smartphone buyers make decisions Why do you select a purchase point? (% of respondents who select parameter as top three) 65% 51% 38% 28% 23% Competitive price Superior experience Convenience Brand/ reputation Range of SKUs What are the most important aspects of the in-store experience? (% of respondents who select parameter as top three) 58% 45% 35% 33% 29% Experience live handset Knowledgable sales force Range of SKUs Store look and feel Stock availability What are the most desired post-purchase services? (% of respondents who select service as most desired) 47% 26% 15% Customer care (service and repair) Sync contacts Set up and data Source: A.T. Kearney survey of Indian consumers 5

6 Uncovering the Hidden Value It is important to capitalize on emerging markets now as the full benefits of the boom in data revenues will come to fruition over the next two to four years. Figure 4 outlines our retail excellence framework, which highlights the important steps in defining the building blocks to execute a smartphone retail strategy. Each layer in the framework format, delivery model, execution is designed to work in concert to capture the entire smartphone value proposition. Figure 4 A.T. Kearney s retail excellence framework Retail value proposition Format Product portfolio Layout and design Ownership model Location Delivery model Range planning, forecasting, and pricing Supply chain, logistics, and partner management IT, data, and analytics Product placement, promotions, upsell, and post-purchase Organization, process, and capability building Execution Source: A.T. Kearney analysis Within the framework are three areas that require CEO-level attention to ensure immediate action, happy customers, and sustainable returns on investments: Develop a retail product portfolio. A good retail portfolio does two things very well: It addresses the right target customer segments and it provides enough loyalty incentives to make sure customers buy their next smartphone from your store. Because customers will be tempted to bypass the store and buy through alternative channels (multi-brand or manufacturer), the store value proposition has to be enticing. Offering guarantees and care plans as part of a smartphone sale is a good way to attract buyers and address their unmet needs. Redesign the existing store layout. Creating a live in-store experience can increase smartphone sales; this includes providing adequate space for the customer to handle and use the phone. The store layout should be oriented toward providing this experience and workers should be trained to focus on sales, rather than merely providing customer service. 6

7 Build capabilities. To squeeze the most from smartphone sales may require investment in new tools and capabilities. Some important ones to consider: demand assessment tools (based on walk-in profiles and other metrics) to incorporate store-level variations in ranging, advanced in-store POS systems to help identify upselling and bundling targets, device training for store staff, and reverse supply chain links to handset manufacturers. Staking a Claim in the Smartphone Market A renewed focus on smartphones can create an immediate impact on sales and a long-term advantage, as buyers tend to remain loyal to their telecom operators. Done properly, operators share of smartphone sales could increase from 2 percent of phone sales today to as much as 10 percent in in four years or less. However, tapping into this growth requires a coordinated smartphone strategy and execution focus. Authors Nikolai Dobberstein, partner, Mumbai Sridhar Narasimhan, principal, Singapore Sarovar Aggarwal, principal, New Delhi 7

8 A.T. Kearney is a global team of forward-thinking partners that delivers immediate impact and growing advantage for its clients. We are passionate problem solvers who excel in collaborating across borders to co-create and realize elegantly simple, practical, and sustainable results. Since 1926, we have been trusted advisors on the most mission-critical issues to the world s leading organizations across all major industries and service sectors. A.T. Kearney has 58 offices located in major business centers across 40 countries. Americas Atlanta Bogotá Calgary Chicago Dallas Detroit Houston Mexico City New York San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Europe Amsterdam Berlin Brussels Bucharest Budapest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Dubai Johannesburg Manama Riyadh For more information, permission to reprint or translate this work, and all other correspondence, please A.T. Kearney Korea LLC is a separate and independent legal entity operating under the A.T. Kearney name in Korea. 2013, A.T. Kearney, Inc. All rights reserved. The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this document represents our pledge to live the values he instilled in our firm and uphold his commitment to ensuring essential rightness in all that we do.

Freight Forwarders: Thinking Outside the Box Given its size, profitability, and expected growth rates, freight forwarding is among the most attractive segments in the North American transportation services

The Data Center of the Future: Creating New Jobs in Europe New data centers will create hundreds of thousands of new jobs for Europe by 2020. But there is work to be done to capture this opportunity fully.

Implications of the Winning with Digital Study How CPG manufacturers and retailers can collaborate to create offers that will make a difference 1 To shed light on retailers shift from traditional to digital

Strategic Operating Environment Scan 04 On the Minds of Business Leaders: Expectations for the Next Months On the Minds of Business Leaders: Expectations for the Next Months Beginning this year, A.T. Kearney

How to Become a Procurement Champion What is the secret to building a prosperous, valuedriven procurement organization? A holistic procurement transformation (HPT), and the right balance between your business

SOCIAL MEDIA STRATEGY EXECUTION 10 STEPS DIGITAL SERIES LIFESTYLE AS BASE FOR CONSUMPTION A strategy that pays off for your business Social Media can be crucial for digital business success if used strategically

Energy Management: Can Utilities Seize the Opportunity? Energy management is generating plenty of buzz. But will it help utilities meet their growth numbers? Not until market trends shake out and partnerships

IT Cost Transformation Getting the Biggest Business Impact From Your IT Organization For many IT departments, costs have been climbing steadily as demand and complexity grow. The rise in complexity has

Modeling Price Outcomes for Complex Government Programs A novel toolkit for evaluating costs can lead to win-win contracts for government and contractors alike. 1 Fixed-price incentive firm (FPIF) contracts

Boost Procurement s Buying Power with Analytics As leaders look to procurement to generate greater value, analytics offers procurement professionals a competitive advantage. 1 Analytics. It is a word that

Winning is no accident Proven assessments of performance and potential to improve organizational leadership at every level To fill the critical gap between strategy and execution plan and performance you

Social Media: Are You Part of This Conversation? Your customers are chatting about you and your products on Facebook, Twitter, and YouTube. So capture their energy and turn it to your advantage. Put social

Delivering a Superior Automotive Customer Experience in Developing Markets Customer experience is becoming a crucial differentiator as the industry matures in developing markets. It is not the employer

Five Themes Shaping the Global Business Environment In a world of constant change, shifting dynamics can quickly hinder corporate strategy. Such a world demands that companies focus on the big picture.

MRO on the Move Outsourcing maintenance, repair and operations To improve quality in certain critical operations and reduce costs in others, many industrial manufacturing companies are turning to integrated

Telecom Retail Stores: Solving the Ownership Puzzle As the role of telecom stores changes, prudent operators will review the split between owned and franchised stores. 1 The global telecom industry looks

The demand exists, the product is good, and the sales team is working harder than ever. Yet you are still losing sales. Different times require different solutions, and B2B companies need to find them.

Have you got the balance Find out the real value of your total reward Reward Pinpoint will help you maximize the effectiveness of your reward program by giving you a complete global picture of the value

Capital Management: A High-Wire Balancing Act The value of good capital management is almost priceless, especially in high-spend industries such as telecommunications and utilities. Much in the way a tightrope

Capturing Value from Copper Industry Cycles By keeping investment levels steady during the inevitable peaks and valleys of the copper market, producers can improve their performance and create a long-lasting

Impact Investing in Mexico Building a Solid Foundation Raúl Solís is deputy general director for investment banking at Nacional Financiera, a Mexican development bank. In this exclusive interview, he discusses

Capturing the Online Grocery Opportunity After years of promise, online grocery is starting to hit its stride. How can food retailers win in this fast-growing market? 1 Online grocery is finally reaching

Opportunities for Action in Financial Services Sales Force Effectiveness: Moving Up the Middle and Managing New Prospects Sales Force Effectiveness: Moving Up the Middle and Managing New Prospects Good

Opportunities for Action Achieving Success in Business Process Outsourcing and Offshoring Achieving Success in Business Process Outsourcing and Offshoring The list of companies that have launched efforts

Leading Research Christopher Vollmer Karen Premo Campaigns to Capabilities Social Media & Marketing 2011 Selected Insights October 2011 Facebook, Twitter, and YouTube are the cornerstones of most social

Making Sustainment Programs More Sustainable Government and industry can work together to build a culture of collaboration that improves weapon system performance. 1 Leading a big-budget military sustainment

The Art of the Big Decision A new approach to analyzing capital-intensive resource investments Dynamic Decision Management views projects as adjustable sequences of decisions. Our approach increases the

IT 2020: Preparing for the Future The digital revolution has transformed the business world. Digital tools are now ubiquitous in all aspects of commerce, from business processes to services and transactions,

Taxing Telecom: The Case for Reform Could overtaxing mobile communications harm the telecom industry a sector essential to boosting economic progress? An A.T. Kearney study finds a balance is needed between

Recasting the Retail Store in Today s Omnichannel World Despite a host of new shopping options, talk of the demise of brick and mortar is premature. Retail stores remain at the heart of the customer relationship

Opportunities for Action in Operations Production Excellence: Unleashing the Power of the Shop Floor Production Excellence: Unleashing the Power of the Shop Floor Many companies today have lost sight of

Reducing Complexity in Retail Banking: Simple Wins Every Time Banks offer a dizzying array of products and services. Add to the mix new regulations and shifting customer needs, and the industry becomes

Opportunities for Action in Consumer Markets To Spend or Not to Spend: A New Approach to Advertising and Promotions To Spend or Not to Spend: A New Approach to Advertising and Promotions Trying to outshout

Best Innovator Competition 2013/2014 In partnership with: www.bestinnovator.com This year, A.T. Kearney will again hold its well-known Best Innovator competition in Russia. The Best Innovator competition

Human Resources Specialty Practice www.stantonchase.com Established in 1990, Stanton Chase has grown to be ranked among the leading global executive search firms as rated by all major industry market research

Confronting Electricity Costs in the United States As consumption patterns change and prices rise, electricity bills are skyrocketing. Several moves can tilt the balance of power and help a company control

The Merger Endgame Revisited Ambitious companies drive consolidation in their industries but how? Our Merger Endgame tool sheds light on the best ways to gain long-term growth and reveals strategies for

Putting the Wholesaler in the Driver s Seat Best practices from the retail industry to improve profitability and gain competitive advantage Wholesalers are more than supply chain intermediaries controlling

Next Generation Access Networks The future of telecommunications in Europe Market forces in Europe are driving telecommunications firms to develop higher bandwidth networks that can provide more efficient

Agile Government: A Citizen-Centric Approach to Growth By engaging citizens and the private sector in policy and service design, GCC public institutions can have a powerful effect on the region s growth.

Six Ways to Reduce Telco IT Complexity Simplifying processes and reducing inefficiencies in how companies set up IT can bring impressive savings even for those with complex business models. 1 Tapping into

Leading Research Paul Hyde Ken Favaro Ashish Jain Samuel Bloustein Small Business Banking Customers An Attractive Segment for Organic Growth Small Business Customers Are Among the Most Profitable Segments

The 2013 Achieving Excellence in Retail Operations study Retail Success Still Depends on Core Principles The retail market is changing, but the 2013 AERO study shows that the priorities remain the same.

Closing Procurement Loopholes Compliance can deliver bottom-line savings Why do chief procurement officers still have problems securing compliance to processes and strategies that can generate major bottom-line

What Makes Cities Successful Randstad on the World Stage 1966 7 World Cities London Moscow New York Paris Randstad Rhein-Ruhr Tokyo Today: JLL City Commercial Attraction Index Top 20 Population Economic

Opportunities for Action in Industrial Goods Winning by Understanding the Full Customer Experience Winning by Understanding the Full Customer Experience The old adage What gets measured gets done is fine

Goodbye Spokesperson, Hello Steward The Transformation of Corporate Communications Once heralded as the seat held by the best storyteller in the company, corporate communications is no longer about amplifying

Refinancing Will Drive Chemicals Consolidation The next five years will be crucial for the development of the global chemicals industry. Which companies will have the strength to emerge as leaders when

From the Back Office to the Corner Office Offshore Services Next Leadership Challenge The last two decades have seen a dramatic evolution in Global In-house Centers (GICs), as their value proposition has

Perspectives Taking Deflation Seriously Taking Deflation Seriously Two years after the biggest downturn in world stock markets since World War II, business executives need to take seriously the prospect

Opportunities for Action in Consumer Markets The Antidote to Mismanaged CRM Initiatives The Antidote to Mismanaged CRM Initiatives Most companies don t know who their best customers are. They enjoy the

Opportunities for Action Shared Services in Operations and IT: Additional Complexity or Real Synergies? Shared Services in Operations and IT: Additional Complexity or Real Synergies? In recent years, many

Opportunities for Action in Consumer Markets Paying for Performance: An Overlooked Opportunity Paying for Performance: An Overlooked Opportunity Every time a sales representative considers which customers

The Real Supply Chain Challenge Leadership and Talent Management The best supply chains appear to be complex, precise machines with millions of moving parts that mesh efficiently and function flawlessly.

How Addressing Consumers Concerns About Data Security Opens the Doors to Growth 1 The past decade has seen digital payment solutions expand from using a credit card online to tapping a mobile device, entering

Digital Beauty in Europe: Attract Consumers and Win Online Beauty and personal care could be the next big online category in Europe but only if products and online shops meet the unique needs of consumers

Beauty: Only as Deep as the Customer Experience In beauty care and cosmetics, the customer s experience is where the sale is won or lost, where the brand comes to life, and where the seeds of loyalty are

Executive Agenda Seizing Advantage in Hospitality s New Frontier The hospitality industry is on the cusp of a major market shift to Asia and Latin America where billions of new middle-class travelers business

Opportunities for Action in Financial Services The Business-to-Business Race Is On The Business-to-Business Race Is On Financial institutions have the chance to play leading and profitable roles in shaping

Global Cities Index and Emerging Cities Outlook Global Cities, Present and Future Today more than ever, global cities need to run just to stand still. Urban leaders who wish to provide their citizens with

The Rise of the Tower Business More mobile operators are spinning off their tower infrastructures in search of growth, shareholder value, and better margins. Now the questions are: Will the growth continue?

Rethinking Supply in Food and Beverage Global pressures on the food and beverage industry will only increase in coming years. More strategic supplier relationships will ensure you are ready for the changes.

Supply chain, logistics & transportation We are where you are and we go where you go www.stantonchase.com Stanton Chase is a leader in executive search consulting and board recruitment with a global footprint,

Opportunities for Action in Financial Services The Three Golden Rules of Cross-Selling The Three Golden Rules of Cross-Selling Most banks and insurance companies recognize the value to be captured from

Summary of Discussions Operations excellence plays a key role in determining any company s future competitive position. To ensure profitable growth, collaboration of functions even across company borders

Option 1 Denied Boarding Compensation voucher may be used for a single Emirates operated two sector return journey between Dubai and the adjoining list of cities. (OR) Between Australia & New Zealand or

Regional Aircraft in India Poised for Takeoff A combination of factors in India s airline industry makes a strong case for expanding fleets with the new generation of smaller, faster, more fuel-efficient

IMPACT STORY Coaching Executives: Building Emotional Intelligence How a Global Airline Developed Emotionally Intelligent Leaders via an Integrated Coaching Solution The Challenge The Columbia Leadership